Overview of the Chinese Economy

After more than a quarter century of reform and opening to the outside world,
by 2005 China’s economy had become the second largest in the world after
the United States when measured on a purchasing power parity (PPP) basis. The
government has a goal of quadrupling the gross domestic product (GDP) by 2020
and more than doubling the per capita GDP. Central planning has been curtailed,
and widespread market economy mechanisms and a reduced government role have
prevailed since 1978.

The government fosters a dual economic structure that has evolved from a socialist,
centrally planned economy to a socialist market economic system, or a “market
economy with socialist characteristics.” Industry is marked by increasing
technological advancements and productivity. People’s communes were eliminated
by 1984— after more than 25 years—and the system of township-collective-household
production was introduced to the agricultural sector. Private ownership of production
assets is legal, although some nonagricultural and industrial facilities are
still state-owned and centrally planned. Restraints on foreign trade were relaxed
when China acceded to the World Trade Organization in 2001. Joint ventures are
encouraged, especially in the coastal special economic zones and open coastal
cities.

A sign of the affluence that the reformed economy has brought to China might
be seen in the number of its millionaires (measured in U.S. dollars): a reported
236,000 millionaires in 2004, an increase of 12 percent over two years earlier.

Chinese officials cite two major trends that have an effect on China’s
market economy and future development: world multipolarization and regional
integration. In relation to these trends, they foresee the roles of China and
the United States in world affairs and with one another as very important. Despite
successes, China’s leaders face a variety of challenges to the nation’s
future economic development.

They have to maintain a high growth rate, deal effectively with the rural workforce,
improve the financial system, continue to reform the state-owned enterprises,
foster the productive private sector, establish a social security system, improve
scientific and educational development, promote better international cooperation,
and change the role of the government in the economic system. Despite constraints
the international market has placed on China, it nevertheless became the world’s
third largest trading nation in 2004 after only the United States and Germany.

The Fifth Plenum of the Sixteenth CCP Central Committee took place in October
2005. The
Fifth Plenum approved the new Eleventh Five-Year Plan (2006–10), which
emphasizes a shift
from extensive to intensive growth in order to meet demands for improved economic
returns; the
conservation of resources to include a 20-percent reduction in energy consumption
by 2010; and
an effort to raise profitability. Better coordination of urban and rural development
and of
development between nearby regions also is emphasized in the new plan.